Relative Strength Index RSI
This is a commonly used technical indicator in short-term trading.
So I suggest you save a backup and practice again and again.
This will increase your trading accuracy by over 30%.
What is the Relative Strength Index (RSI)?
The Relative Strength Index (RSI) is a momentum indicator used in technical analysis to measure the magnitude of recent price changes to assess whether a stock or other asset is overbought or oversold. RSI appears as an oscillator (a line graph moving between two extremes) with readings ranging from 0 to 100.
The indicator was originally proposed by J. Welles Wilder Jr. and introduced in his seminal 1978 book "New Concepts in Technical Trading Systems";
The traditional interpretation and use of RSI is that a value of 70 or above indicates that a security is overbought or overvalued, and that a trend reversal or price correction is possible. An RSI reading of 30 or below indicates oversold or undervalued conditions.
Main points
The Relative Strength Index (RSI) is a popular momentum oscillator developed in 1978.
The Relative Strength Index provides bullish and bearish price momentum signals to technical traders and is typically plotted underneath an asset price chart.
An asset is typically considered overbought when the RSI is above 70%, and oversold when the RSI is below 30%.
relative strength index formula
There are two parts to the calculation of the Relative Strength Index (RSI). The calculation method is as follows:
The average gain or loss used in the calculation is the average gain or loss percentage over the period under review. This formula uses positive values as the average loss.
The standard is to use 14 periods to calculate the initial RSI value. For example, let's say the stock market has closed higher on seven of the past 14 days, with an average gain of 1%. The remaining seven days saw smaller declines, averaging -0.8%. The calculation of the first part of the RSI is similar to the following extended calculation:
Once you have 14 data periods, you can calculate the second part of the RSI formula. The second step of the calculation smoothes the result.
【Calculate RSI】
Using the above formula, we can calculate the RSI and then plot the RSI line below the asset price chart.
The RSI will rise with the number and size of positive closes and fall with the number and size of losses. The second part of the calculation smoothes the results so that in trending markets the relative index is only briefly close to 100 or 0.
As shown in the chart above, when Bitcoin is in a stable uptrend, the RSI can remain in the overbought zone for extended periods of time. When Bitcoin is oversold, the indicator can also stay in the oversold zone for extended periods of time during a downtrend. This can be confusing for novice traders, but learning to use this indicator in the context of current trends will clarify these issues.
What does RSI tell you?
The main trend of Bitcoin or an asset is an important tool to ensure correct understanding of indicator readings. For example, noted market technologist Constance Brown notes that in an uptrend the Relative Standard Index (RSI) can be more than 30% oversold, while in a downtrend the RSI can be well below 70% overbought.
As shown in the chart below, in a downtrend, the RSI will peak around 50% instead of around 70%, which is an indicator that investors can more reliably use to signal a bear market. Many investors will use sideways investing strategy trend lines between the 30% and 70% levels to better identify extreme situations when strong trends occur. Horizontal channels are generally not needed when the price of a stock or asset is at long-term levels and adjusts to overbought or oversold levels.
The use of the related concepts of overbought or oversold as applied to trend levels is mainly focused on trading signals and trend following techniques. In other words, using bullish signals when the price is in a bullish trend and bearish signals when Bitcoin is in a bearish trend will help avoid many of the false positives that RSI can produce.
RSI and RSI Ranges Explained
Generally speaking, when the RSI breaks above the 30 reference level, it is a bullish signal, and when the RSI falls below the 70 reference level, it is a bearish signal. In other words, price levels of 70 or higher are overbought; overvalued and potentially primed for a trend; reversal and price correction; pullback. An RSI reading of 30 or below indicates oversold or undervalued conditions.
In a trend, RSI readings may fall within a range or range. During an uptrend, the RSI tends to stay above 30, often reaching 70. During a downtrend, the RSI rarely exceeds 70 and the indicator frequently reaches 30 or below. These guidelines help determine trend strength and spot potential reversals. For example, if the RSI fails to reach 70 multiple times during an uptrend, but then falls below 30, the trend has weakened and may reverse to the downside;
A downward trend is just the opposite. If the downtrend fails to reach 30 or below and then rebounds above 70, the downtrend has weakened and may reverse upward. Trendlines and moving averages are useful tools, including when using RSI in this way.
RSI Divergence Example
Bullish divergence occurs when the RSI produces an oversold reading, followed by higher lows that match corresponding lower price lows. This suggests that rising bullish momentum and a breakout of oversold territory could trigger a fresh rally in long positions.
Bearish divergence occurs when the RSI creates an overbought index, followed by lower highs that match correspondingly higher price highs.
Bullish divergence is confirmed when RSI forms higher lows and price forms lower lows, as shown in the chart below. This is a valid signal, but when a stock is in a stable long-term trend, divergence may be rare. Using flexible oversold or overbought readings will help identify more potential signals.
RSI Swing Rejection Example
Another trading technique is to check the behavior of the RSI when it re-emerges from overbought or oversold areas. This signal is called a bullish "swing suppression" and has four components:
1️⃣RSI is in the oversold zone.
2️⃣ RSI back up above 30%.
3️⃣ RSI fell again, but did not return to the oversold area.
4️⃣RSI then breaks out of recent highs.
As shown in the figure below, the RSI indicator is oversold and breaks above 30% to form a rejection low, triggering a rebound signal. Using the RSI in this way is very similar to drawing a trendline on a price chart.
Like divergences, swing suppression signals also have bearish versions that appear to mirror the bullish versions. A bear market also has four parts:
1️⃣RSI rose to the overbought area.
2️⃣ RSI back below 70%.
3️⃣ RSI made another high and did not return to the overbought zone.
4️⃣RSI then breaks out of recent lows.
The chart below shows a bearish volatility suppression signal. As with most trading techniques, signals will be most reliable when they are consistent with the overall long-term trend. Bearish signals in a downtrend are less likely to generate false positives.
‼ ️️Technical Analysis Tip: I think the real role of all technical analysis methods is to help us "simplify past information" rather than using it directly to time and predict Bitcoin's future‼ ️.
By simplifying the interpretation of information, it can be used as an analytical basis to judge future situations and improve reliability.
Before you begin to understand, you must remember that no technical indicator can predict the future 100%. The purpose of technology is to allow us to make fewer mistakes and increase the success rate of transactions.
Next I will teach you how to import the RSI indicator into the trading interface.
(Pay attention to the tips on the chart)
I will demonstrate to you using currency [KraKen] trading software:
Open any cryptocurrency software.
Select the yellow circle sign.
The above is how to add the (RSI) technical indicator to your trading software. Today you can practice trading based on my sharing and teaching.
Please follow the transaction method. All trading is not gambling based on feeling or luck. It must be won through skill and the use of weapons.
So I hope everyone takes it seriously. Tomorrow I will use RSI to analyze trading signals for you and lead you to real-time trading in the discussion area.
Remember, technology is your weapon of trade.
Soldiers and guns coexist, trades and skills coexist.
Therefore, I have always emphasized its importance and hope that everyone will read it repeatedly, back it up, and save it.
Because this is the wealth that belongs to your brain.
If your pocket is not rich enough, then you must first make your mind rich.
In my discussion group, you can learn a lot every day.
I want you to clear your mind and reabsorb what I have taught you.
This knowledge will accompany you throughout your life, allowing you to re-understand the cryptocurrency market, allowing you to see opportunities and be good at seizing them, thus completely changing your life.
If the first half of your life is not going well, try your best to seize this opportunity.
This is an opportunity for each of us.
Because most of the world's troubles are caused by not having enough money. So you have to change.